NEW YORK CITY -- A federal bankruptcy judge on May 14 denied Hostess Brand's motion to throw out its employment contracts with the International Brotherhood of Teamsters union, but cleared the way for the troubled baked goods manufacturer to end some of its other union contracts.

The Irving, TX, maker of Twinkies and Ho Hos filed for Chapter 11 in January, three years after emerging from its last bankruptcy, blaming its labor contracts and rising costs. | SEE STORY

Hostess and the Teamsters have each submitted proposals for restructuring the company. Bankruptcy Judge Robert Drain said both plans seem viable options and urged the two sides to strike a compromise deal. He said he might allow Hostess to submit a new restructuring plan if the two sides could not reach an agreement.

Earlier this month, Judge Drain gave Hostess the go-ahead to reject certain union contracts and modify some retiree benefits as the company tries to cut costs associated with its pension plans and $860 million in debt.

Hostess can now reject some agreements with the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union, the judge ruled. However, contracts that had expired before the start of the hearing, under which unions are still operating, cannot be modified or rejected by the company.

Hostess warned earlier this month that it could be forced to liquidate if it can't cut its pension costs. The company sent notices to its 18,500 employees, a majority of whom are members of 12 unions, warning them that it may liquidate in the next two months.